The Influence of the WTO over China s Intellectual Property Regime

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1 The Influence of the WTO over China s Intellectual Property Regime Natalie P Stoianoff Abstract This article commences with a brief history of China s intellectual property policy and international relations over the past 150 years. China s engagement with the western construct of intellectual property rights is strongly aligned with China s international trade relations. In particular, this article will consider the influence of the enquiries into transparency that followed China s first review after accession to the WTO and then the dispute resolution process initiated by the United States specifically on issues of intellectual property enforcement. Despite the numerous international treaties and agreements on intellectual property rights that exist and to which China acceded in the early days of the Open Door Policy period, it was the need to become a member of the WTO and with that the expectation of compliance with the prescriptive requirements found in the WTO Agreement on Trade Related Aspects of Intellectual Property Rights ( the TRIPS Agreement ) that provided the greatest influence on the shaping of China s intellectual property regime today. Recent developments highlight a counterpoint in China s engagement with the TRIPS Agreement. This is indicated in China s willingness to align itself with the views of developing nations in the way that the TRIPS Agreement is interpreted and this is most evident in the recent Patent Law amendments which demonstrate China s desire to be an innovator, not a copier. I Introduction This article commences with a brief history of China s intellectual property policy and international relations over the past 150 years. China s engagement with the western construct of intellectual property rights is strongly aligned with China s international trade relations. The first round of international trade relations when intellectual property rights were dealt with was experienced from the 1800s and into the early 1900s and effectively ended with the establishment of the People s Republic of China. The second round is marked by the Open Door Policy era in the lead-up to World Trade Organization ( WTO ) membership. Once achieved, the ongoing sparring with western intellectual Natalie Stoianoff is a Professor in the Faculty of Law at the University of Technology, Sydney, and the Director of the Intellectual Property Program. She is the Chair of the Faculty Research Network for Intellectual Property, Media and Communications, and the Convenor of the China Law Research Group.

2 66 SYDNEY LAW REVIEW [VOL 34:65 property export nations through the forum of the WTO demonstrates the influence of that forum. In particular, this article will consider the influence of the enquiries into transparency that followed China s first review after accession to the WTO and the dispute resolution process initiated by the United States specifically on issues of intellectual property enforcement. China has been a party to many more disputes 1 in the forum of the WTO that are not dealt with here. This article argues that despite the numerous international treaties and agreements on intellectual property rights that exist and to which China acceded in the early days of the Open Door Policy period, it was the need to become a member of the WTO and with that the expectation of compliance with the prescriptive requirements found in the WTO Agreement on Trade Related Aspects of Intellectual Property Rights 2 that have provided the greatest influence on the shaping of China s intellectual property regime today. China participated in the negotiations for the TRIPS Agreement during the Uruguay Round of the General Agreement on Tariffs and Trade ( GATT ), 3 yet it took another five years before China was seriously considered for membership of the WTO. The TRIPS Agreement represents a model of legal transplant that has been designed to effect neoliberal globalisation. The TRIPS Agreement has certainly accelerated both the uptake and the harmonisation or standardisation of intellectual property laws worldwide regardless of cultural, economic or political differences. Equally, the forum of the WTO has enabled the TRIPS Agreement to be subject to development taking into account the interests of a growing number of developing countries. Recent developments highlight a counterpoint in China s engagement with the TRIPS Agreement. This is indicated in China s willingness to align itself with the views of developing nations in the way that the TRIPS Agreement is interpreted: most evident in the recent Patent Law amendments, demonstrating China s desire to be an innovator not a copier. However, the last section of this article warns that China still has some way to go before it realises this desire but is certainly on its way. II China s International Intellectual Property Relations Round One China s engagement with intellectual property regimes seems to revolve around foreign influence, namely meeting the demands or expectations of foreign powers with which China traded and from which China sought investment. Accordingly, it is not surprising to discover that a degree of trademark protection was included in various commercial agreements and treaties China entered into with several nations including Britain, the US and Japan, during the late 1800s China has been involved in 25 disputes; sometimes as complainant but more often as defendant. See Wenhua Ji and Cui Huang, China s Experience in Dealing with WTO Dispute Settlement: A Chinese Perspective (2011) 45 (1) Journal of World Trade1, 3. Agreement on Trade-Related Aspects of Intellectual Property Rights 33 ILM 81 (opened for signature 15 April 1994, entered into force 1 January 1995) ( TRIPS Agreement ). Ching Cheong and Ching Hung Yee, Handbook on China s WTO Accession and its Impacts (World Scientific, 2003) 131.

3 2012] WTO INFLUENCE ON CHINA S INTELLECTUAL PROPERTY 67 and early 1900s. 4 Similarly, suggestions in the late 1800s that China s then backwardness in science and technology was due to the lack of a patent system 5 led to the promulgation, in 1898, of China s alleged first patent legislation, the Reward Regulations for Promoting Technology Development Zhenxing Gongyi Geijiang Zhangcheng. 6 Despite having given the world the inventions of gunpowder, the compass, and printing during the Song dynasty ( ), 7 this new law was born out of a backdrop of China s westernisation movement in the 1860s, its position of disadvantage in relation to the foreign powers that over time partitioned China between Russia, Britain and Germany, followed by [t]he failure of the Sino-Japanese War of Meanwhile, the late 19 th century witnessed the international recognition of the importance of intellectual property rights with the establishment of two significant pieces of international law, the Paris Convention for the Protection of Industrial Property 1883, 9 and the Berne Convention for the Protection of Literary and Artistic Works This came after the 1800s had been marked by the British Empire s free trade policies while nations focused on protecting nationals to the exclusion of foreigners. Cross-border infringement became enough of a problem to bring about international action in the form of these conventions. Some nations dealt with the issue of cross-border infringement through bilateral agreements granting reciprocal rights. However, a truly effective arrangement required a multilateral agreement such as the conventions provided. By the end of the 19 th century, the US was a party to the Paris Convention but not a member of the Berne Convention. Instead it enacted separate legislation to protect foreign copyright holders on a reciprocal basis. 11 Yu explains that at this time the United States coerced China into a treaty over reciprocal protection of patents, trademarks and copyright with Britain and Japan adopting similar arrangements. 12 This was a necessary step as China resisted membership of both multilateral treaties, the Paris William P Alford, To Steal a Book is an Elegant Offense: Intellectual Property Law in Chinese Civilization (Stanford University Press, 1995) Proposed in Shen Bao, the leading newspaper in China in 1896, cited in Liwei Wang, The Chinese Traditions Inimical to the Patent Law (1993) 14 Northwestern Journal of International Law & Business 15, 19. Columbia University, China s Golden Age : the Song, the Mongols, and the Ming Voyages and Korea under the Mongols (12 October 2009) East Asian Curriculum Project Asia for Educators <http://afe.easia.columbia.edu/webcourse/key_points/kp_6.htm>. Wang, above n 5. Paris Convention for the Protection of Industrial Property of 20 March 1883, as revised at Brussels on 14 December 1900, at Washington on 2 June 1911, at The Hague on 6 November 1925, at London on 2 June 1934, at Lisbon on 31 October 1958, at Stockholm on 14 July 1967 and as amended on 28 September 1979 ( Paris Convention ). Berne Convention for the Protection of Literary and Artistic Works of 9 September 1886, completed at Paris on 4 May , revised at Berlin on 13 November 1908, completed at Berne on 20 March 1914, revised at Rome on 2 June 1928, at Brussels on 26 June 1948, at Stockholm on 14 July 1967, and at Paris on 24 July 1971, and amended on 28 September 1979 ( Berne Convention ). Peter K Yu, The Sweet and Sour Story of Chinese Intellectual Property Rights, in Graham Dutfield and Uma Suthersanen (eds), Technology, Progress and Prosperity: A History of Intellectual Property and Development (Palgrave Macmillan, forthcoming 2012) 3. The treaty with the US was a commercial treaty signed in 1903.

4 68 SYDNEY LAW REVIEW [VOL 34:65 and Berne Conventions. Next steps would be the enactment of laws in China to acknowledge its obligations to provide intellectual property rights protection. The Copyright Law of the Qing Dynasty 1910 (also known as the Author s Right in the Qing Empire ) was arguably China s first copyright legislation and it, too, was subject to external pressures, this time to improve protection for foreign workers. 13 However, the Qing dynasty came to an end before the law was implemented. 14 With the newly-established Republic of China came the 1912 Provisional Regulations of the Reward for Handicraft and the granting of hundreds of patents even before the Patent Law was promulgated in Meanwhile, another copyright law was enacted in 1928 under the Kuomintang (Nationalist Party) government but with minimal domestic impact. 16 China resisted growing international expectations to participate in multilateral and bilateral arrangements concerning copyright during this time. 17 Then, with the events leading up to the establishment of the People s Republic of China, copyright, and indeed all other forms of intellectual property, disappeared until the last quarter of the 20 th century. 18 The last 60 years of intellectual property policy in China can be divided into the Maoist era and the Open Door Policy era. What distinguishes these two periods is the stark contrast in ideologies. Mao utilised Confucian morality as a basis for communist morality, which in turn was utilised as a means of scorning commercial profit while simultaneously demonstrating commitment to the development of science and technology. 19 Meanwhile, the Open Door Policy era adopted the western tradition of acknowledging individual exclusionary ownership rights over intellectual property and, indeed, other forms of property. During the Maoist era, there was emphasis on the collective and accordingly state ownership of property rights. Despite a commitment to scientific and technological development, the Maoist era is defined by the ideological 20 grounding of the Chinese Communist Party (CCP) in Marxism-Leninism. Socialist ideals and Confucian tradition and morality prevailed such that the state retained ownership of inventions, thereby preventing inventors from benefiting from their efforts to the exclusion of others. This was achieved through the Regulations on Awards for Inventions, issued in November 1963 by the Chinese government. Specifically, art 23 of the Regulations stated: Patricia Blazey and YiJun Tian, Intellectual Property Law in China, in Patricia Blazey and Kai- Wah Chan (eds), The Chinese Commercial Legal System (Thomson, 2008) 321, 323. Chengsi Zheng and Michael Pendleton, Copyright Law in China (CCH, 1991) 17. Wang, above n 5, 20. June Cohan Lazar, Protecting Ideas and Ideals: Copyright Law in the People s Republic of China (1996) 27 Law and Policy in International Business1185, Blazey and Tian, above n 13, 323. Lazar, above n 16, Wang, above n 5 at Andrea Wechsler, Intellectual Property Law in the PR China: A Powerful Economic Tool for Innovation and Development, (Max Planck Institute for Intellectual Property, Competition & Tax Law Research Paper Series No 09-02, 2008) 9.

5 2012] WTO INFLUENCE ON CHINA S INTELLECTUAL PROPERTY 69 all inventions are the property of the state, and no one or unit may claim monopoly over them. All units throughout the country (including collectively owned units) may make use of the inventions essential to them. Meanwhile, copyright, during this period, was eventually stamped out. The Cultural Revolution demonstrated that even rationales for copyright law based on Marxism-Leninism were no longer acceptable. Instead, Wechsler tells us that all administrative orders and internal regulations governing plagiarism and remuneration were abolished at this time. 21 Since the advent of the Open Door policy at the end of 1978, the development of laws in China has converged with the legal traditions of Europe, and more recently the US, in a concerted effort to comply with international expectations. This is most evident in the development of intellectual property laws in China and marks a very different attitude to that shown at the beginning of the 20 th century. China recognised the necessity to embrace commercial laws, the hallmark of market economies, in order to attract foreign investment and begin its own economic transformation. With the push towards membership of the WTO came the need to further develop these intellectual property laws in order to comply with the requirements of the TRIPS Agreement. Since China s accession to the WTO, the intellectual property regime has undergone further change and further criticisms with the greatest pressures emanating from foreign interests determined to ensure greater protection of their rights (a not dissimilar situation to that faced by China at the end of the 19 th century). III China s Intellectual Property Policy during the Open Door Policy Era The Open Door Policy is synonymous with the leadership of Deng Xiaoping. Following his accession to power in August of 1977, Deng introduced the Four Modernisations and discussed them in many of his speeches. 22 He firmly believed that making use of the advanced technologies and achievements from around the world was necessary to expand the economy and achieve these four modernisations: industry; agriculture; national defence; and science and technology. 23 It was then that China began to embrace an all encompassing intellectual property rights system, unlike the previous attempts almost a century before. One of the key drivers for this was the interest in attracting foreign investment and foreign technology. But even before the introduction of intellectual property regimes during this period, the encouragement of inventions through a reward mechanism became a priority with the adoption of Regulations on Awards for Inventions in 1978 upon the establishment of the Open Door Ibid 13. See the series of English excerpts from Deng s speeches in Selected Works of Deng Xiaoping Volume II ( ), News of the Communist Party of China <http://english.cpc. people.com.cn/mediafile/200607/05/f swf>. Wang, above n 5 at 16.

6 70 SYDNEY LAW REVIEW [VOL 34:65 Policy. 24 Another encouraging factor would have been the establishment of diplomatic relations with the US and the establishment of a US-China Bilateral Trade Agreement in Reminiscent of the coercive relationships at the turn of the 19 th century discussed above? Following this, China embarked upon a systematic program of acceding to the key international intellectual property conventions and agreements commencing with membership of the World Intellectual Property Organization 25 ( WIPO ) in 1980 and the key industrial property convention, the Paris Convention, in The adoption of the Constitution of the People s Republic of China at the Fifth Session of the Fifth National People s Congress in 1982 led to the emergence of the first substantive laws covering intellectual property rights. The Trademark Law of the People s Republic of China ( Trademark Law ) was adopted in and was soon followed by implementing provisions. Article 1 of the Trade Marks Law indicates several purposes of the regime beyond the mere protection of trade mark rights holders including consumer protection through quality guarantees and maintenance of reputation as well as promoting the development of the socialist market economy. The Patent Law of the People s Republic of China ( Patent Law ) was 27 adopted in 1984, also followed by implementing provisions. The purpose of the Patent Law was stipulated in art 1: This Law is enacted to protect patent rights for inventions-creations, to encourage invention-creation, to foster the spreading and application of inventions-creations, and to promote the development and innovation of science and technology, for meeting the needs of the construction of socialist 28 modernization Adopted 28 December 1978, available in English at: Regulations of the People s Republic of China on Awards for Inventions <http://preview.english.mofcom.gov.cn/article/lawsdata/ chineselaw/200211/ html>. Industrial property is the collective term covering patents, trademarks, designs and associated rights. Trademark Law of the People s Republic of China (adopted at the 24 th Session of the Standing Committee of the Fifth National People s Congress on 23 August 1982, revised for the first time according to the Decision on the Amendment of the Trademark Law of the People s Republic of China adopted at the 30th Session of the Standing Committee of the Seventh National People s Congress, on 22 February 1993, and revised for the second time according to the Decision on the Amendment of the Trademark Law of the People s Republic of China adopted at the 24th Session of the Standing Committee of the Ninth National People s Congress on 27 October 2001) ( the Trademark Law ). Patent Law of the People s Republic of China (adopted at the 4th Meeting of the Standing Committee of the Sixth National People s Congress on 12 March Amended in accordance with the Decision of the Standing Committee of the Seventh National People s Congress on Amending the Patent Law of the People s Republic of China at its 27 th Meeting on 4 September Amended again in accordance with the Decision of the Standing Committee of the Ninth National People s Congress on Amending the Patent Law of the People s Republic of China adopted at its 17 th Meeting on 25 August 2000) ( the Patent Law ). State Intellectual Property Office of the People s Republic of China, Patent Law of the People s Republic of China (27 March 2002) <http://www.sipo.gov.cn/sipo_english/laws/ lawsregulations/200804/t _ html>.

7 2012] WTO INFLUENCE ON CHINA S INTELLECTUAL PROPERTY 71 Clearly, the Patent Law was perceived as part of the process necessary to achieve the objectives of the Open Door Policy era, namely the four modernisations referred to above. 29 Returning to the earlier timeline, after the 1984 Patent Law, there was a noticeable gap until the Copyright Law of the People s Republic of China ( Copyright Law ) was adopted in In addition to the purpose of protecting the rights of authors in their works, the Copyright Law has the purpose of: encouraging the creation and dissemination of works which would contribute to the construction of socialist spiritual and material civilisation, and of promoting the development and prosperity of the socialist culture and 31 science. Once again this is in keeping with the intent of the four modernisations. However, the words used emphasise that these types of works, namely ones that are aligned with socialist ideology, are encouraged under such a copyright regime. This implies censorship of works that are not in line with socialist ideology. Foreign works, for example, foreign films, undergo content review by State Council administrative agencies in order to obtain approval for circulation in China and may also be subject to government quotas. The WTO dispute brought by the US in raised, among others, the issue of China s copyright legislation denying protection to those works that were accordingly prohibited from publication or distribution. This dispute before the WTO Panel was the pinnacle of the tension that developed between the US and China on intellectual property protection and enforcement from the early 1990s. 33 The international sparring between the US and China from 1991 to 1996 was predominantly concerned with China s failure to meet obligations in this field and resulted in China appearing in the Special 301 Priority Foreign Countries See the series of English excerpts from Deng s speeches, above n 22. Copyright Law of the People s Republic of China (Adopted at the Fifteenth Session of the Standing Committee of the Seventh National People s Congress on 7 September 1990, and revised in accordance with the Decision on the Amendment of the Copyright Law of the People s Republic of China adopted at the 24 th Session of the Standing Committee of the Ninth National People s Congress on 27 October 2001) ( Copyright Law ); State Intellectual Property Office of the People s Republic of China, Copyright Law of the People s Republic of China (16 April 2002) <http://english.sipo.gov.cn/laws/relatedlaws/200804/t _ html>. WTO Dispute Resolution Action: China Measures Affecting the Protection and Enforcement of Intellectual Property Rights, WT/DS362. Simultaneously, the US brought another dispute against China to the WTO in relation to the restrictions placed on foreign content material which went beyond the Panel and on to the Appellate Body for final determination: China Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, WT/DS363/AB/R. Once again a mixed result but on the whole China was found to have regulations inconsistent with its obligations under the Protocol and was given until 19 March 2011 to implement the necessary amendments: see WTO, Dispute DS363: China Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products (15 July 2011) <http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds363_e.htm> (26 April 2011). As of 31 March 2011, the foreign film quotas remained at 20 per year: see Lee Hannon, Nation should be taken, not stirred China Daily (online) 31 March 2011: <http://www.chinadaily.com.cn/bizchina/ /31/content_ htm>.

8 72 SYDNEY LAW REVIEW [VOL 34:65 Report. It led to the establishment of a Memorandum of Understanding with the US on intellectual property rights in as well as China joining the Berne Convention and the Universal Copyright Convention 35 also in This period saw the introduction of regulations to improve protection of software, 36 to deal with punishment of criminal copyright infringement, 37 the introduction of the Law Against Unfair Competition of the People s Republic of China in 1993, 38 and the establishment of Intellectual Property Courts. However, it was not until that more effective measures were introduced to combat copyright piracy and only after China appeared as a priority foreign country for a third time in the US Special 301 Report. 39 As can be imagined, during this period the US actively blocked China s membership of the WTO on the basis of China s intellectual property rights deficiencies; in other words, a failure to meet the requirements of the TRIPS Agreement. However, in 1999, China agreed to the TRIPS Agreement, and then embarked on harmonising its intellectual property laws with TRIPS. 40 In 2000 China amended the Patent Law to become more aligned with TRIPS, and in 2001 proceeded to do the same with the Copyright Law and the Trademark Law before being allowed to join the WTO in December of that year only after accepting a People s Republic Of China Intellectual Property Rights Memorandum Of Understanding 1992 Memorandum Of Understanding Between The Government Of The People s Republic Of China And The Government Of The United States Of America On The Protection Of Intellectual Property, at <http://tcc.export.gov/trade_agreements/all_trade_agreements/exp_ asp>. Universal Copyright Convention, with Appendix Declaration relating to Articles XVII and Resolution concerning Article XI 1952, (UNESCO) Geneva, opened for signature 6 September 1952, <http://portal.unesco.org/en/ev.php-url_id=15381&url_do=do_topic&url_ SECTION=201.html>. Regulations on the Protection of Computer Software 1991, effective 1 October 1991, then repealed on 1 January 2002 when the new Regulations on Computer Software Protection 2002 became effective. Decision of the Standing Committee of the National People s Congress Concerning Punishment of the Crime of Copyright Infringement (1994). Law Against Unfair Competition of the People s Republic of China (adopted at the Third Session of the Standing Committee of the Eighth National People s Congress on 2 September Promulgated by Order No 10 of the President of the People s Republic of China on 2 September 1993, and effective on 1 December 1993). This is an annual report prepared pursuant to s 182 and under the Special 301 provisions of the Trade Act of USC 12 as amended. The United States Trade Representative ( USTR ) has the obligation to identify those countries that deny adequate and effective protection for intellectual property rights ( IPR ) or deny fair and equitable market access for persons that rely on intellectual property protection (see Annex 1, Statutory Background on Special 301, 2009 Special 301 Report). China is currently (and for many years has been) under the Priority Watch List and therefore the focus of bilateral attention in order to deal with the identified IPR problems. The significance of the Special 301 mechanism is that it provides the US with the power to coerce the implementation of stronger intellectual property protection by the offending state through the threat of trade restrictions and may go as far as invoking the WTO dispute settlement processes even where the country is recognised as TRIPS-compliant. It should be noted that China appeared in the Special 301 Watch List in 1992 and 1995, the Priority Watch List in 1989, 1990, and 2006 to 2011, as a Priority Foreign Country in 1991, 1994 and 1996, underwent section 306 monitoring (to ensure compliance with the commitments made to the United States under bilateral intellectual property agreements) each year since 1997, and was the subject of an out-of-cycle review in Blazey and Tian, above n 13, 326.

9 2012] WTO INFLUENCE ON CHINA S INTELLECTUAL PROPERTY 73 lengthy Protocol of implementation 41 resulting in further amendment of the Copyright Law in Such development in the Chinese legal system demonstrates the concept of 42 legal transplants (also known as diffusion ) where borrowing or importing laws from foreign sources assists in achieving desired outcomes. Mousourakis points out that a legislator must first consider whether the rule has proved efficient in its country of origin when dealing with the specific problem at hand and then whether it will produce the desired effects in the country contemplating 43 its adoption. However, modifications may be required to account for differences in the political, social, cultural and economic environment. 44 China uses this argument in responding to the disputes raised in the WTO against its intellectual property system (mentioned above and to be dealt with later in this article). Meanwhile, becoming a party to an international agreement or convention exemplifies legal transplant on a global scale. In fact, the requirement to comply with the TRIPS Agreement as part of joining the WTO demonstrates how legal transplantation is used in achieving global harmonisation. However, Mousourakis reminds us that legal integration and harmonization require reasonably transferable [legal] models but that law is more than simply a body of rules or institutions; it is also a social practice within a legal community and that this social practice shapes the actual meaning of the rules and institutions, their 45 relative weight, and the way they are implemented and operate in society. This is evident in the issues that China has experienced in enforcing intellectual property rights. With so much international coercion to constantly improve the intellectual property regime in China, the legal framework in which intellectual property rights are protected would rival any advanced economy. However, as Schiappacasse points out, the excellent laws on the books have not translated to a successful 46 enforcement regime. This is problematic not just because the US has documented the extensive piracy by Chinese manufacturers of the products of US industries in the Special 301 Reports. Rather, China agreed to the Protocol on its accession to the WTO which specified (through the Report of the Working Party on the Accession of China) that efforts would be made in relation to the enforcement regimes for intellectual property rights Protocol on the Accession of the People s Republic of China, (WT/L/432) (23 November 2001) ( the Protocol ). This term was coined by the legal scholar, Alan Watson, in his book: Alan Watson, Legal Transplants: An Approach to Comparative Law (University of Georgia Press, 1974). George Mousourakis, Transplanting Legal Models across Culturally Diverse Societies: A Comparative Law Perspective (2010) 57 Osaka University Law Review 87, 89. Ibid 90. Mikhaelle Schiappacasse, Intellectual Property Rights in China: Technology Transfers and Economic Development (2004) Buffalo Intellectual Property Law Journal 164, 179.

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